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LIC Housing Finance Ltd (updated - 23 Sept 2009)
The Rs 658 crore that LIC Housing Finance has picked up should come in handy for its loan disbursements this year, and it doesn’t matter that the equity base will be diluted by about 12 per cent.
The company recently raised 10 million shares, at aprice of Rs 658 per share, through a qualified institutional placement (QIP). The home loan firm plans to grow its loan book by about 40 per cent in the current year, a target that appears to be somewhat ambitious even though the economy is now clearly on the mend.
However, Chief Executive R R Nair says, loan disbursements are growing at 70 per cent yearon-year currently and is fairly confident that the target should be achieved as demand is strong. Analysts are looking at a slightly more conservative loan growth of about 28-30 per cent
However, real estate developers are reporting good demand for smaller homes and LIC Housing’s average loan size, Nair points out, is Rs 13 lakh plus. Under the circumstances, it’s just as well that LIC Housing mopped up the money because it might have lost out on lending opportunities; analysts believe the cash flows generated by it internally may not have been sufficient to fund the loans.
They point out that since the money should be put to use fairly, quickly and not lie around, the return on equity(RoE) should not be depressed for too long, even if it slips somewhat for a couple of quarters. Also, since interest rates are unlikely to fall from these levels, the net interest margin (NIM) should improve gradually.
In the June 2009 quarter, the NIM was hurt as the cost of funds was relatively high when compared with the lending rates, which have been coming off in a decreasing interest rate environment. In the current year, the company is expected to post a net profit of around Rs 625 crore, over the Rs 530 crore reported in 200809. The stock has seen a very sharp run up gaining 16 per cent in the past week and at the current price of Rs 817, the stock trades at a somewhat expensive 2 times estimated book value for 2010-11.
source - BS
Finance - Housing - Quick Overview
LIC Housing Finance Ltd
LIC Housing Finance Ltd (updated - 11 Nov 2009)
Although cost of funds came down, yields on loans weren’t high enough for LIC Housing Finance to post an increase in margins in the September 2009 quarter. The firm’s net interest margin stayed sequentially flat at 2.45 per cent while showing a slight fall year-on-year.
With margins flat in the September 2009 quarter, rise in net interest income was only 9 per cent. It was partly a write-back of excess provisioning of close to Rs 41 crore that helped the home loan company report a 27 per cent increase in net profit at Rs 170 crore.
The margins are a bit of adisappointment because the company would have enjoyed the benefit of Rs 658 crore that it raise recently through a placement to institutions. However, a few months ago, the company effected a 50 basis points cut in the prime lending rate, which appears to have impacted yields.
Of course, since there is enough liquidity in the system, competition in the market is keen. LIC Housing’s cost of borrowings are expected to come down further from the current levels of around 8.5 per cent now that the incremental cost of resources is estimated at around 7.5 per cent.
Should yields sustain at these levels, margins should improve in the coming months given that business is brisk with approvals rising 82 per cent and disbursements rising 74 per cent during the quarter. As a result, the loan book currently stands at close to Rs 32,000 crore with individual loans dominating.
Also, the book is clean with share of nonperforming loans having fallen to 1.28 per cent from 1.51 per cent in the June quarter. LIC Housing has enough capital and plans to grow its loan book by 40 per cent in the current year -the growth in the September 2009 quarter was 32 per cent.
Analysts estimate that net profits could grow 24 per cent compounded over 2009-2011. At the current price of Rs 744/879, however, the stock trades at 2times 2010-11 adjusted price to book value and is not cheap.
source - BS